HighlightsA couple of minutes ahead of schedule (yes, again), the Fed announced it retained the current policy rate range of 0.0 to 0.25 percent but the FOMC changed key language. Instead of saying that the policy rate will remain exceptionally low likely through mid-2013, the Fed now says the fed funds rate is likely to remain exceptionally low through LATE 2014 (emphasis added). Otherwise, the statement was essentially the same as in December 2011.

The vote for the statement language was 9 to 1 with Richmond Fed President Jeffrey M. Lacker dissenting. He wanted to omit language indicating how long the rate is expected to remain exceptionally low. In contrast, Chicago Fed President Charles Evans did not dissent this time. In December, he dissented in favor of immediate additional easing.

Since the statement is otherwise essentially unchanged, the following summarizes key points:

The economy is expanding "moderately" despite slowing in global growth.

The unemployment rate will decline but only gradually.

Inflation is expected to run at levels at or below the FOMC's mandate.

The Maturity Extension Program (aka Operation Twist) continues. The Fed will continue to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and will continue to roll over maturing Treasury securities at auction.

Essentially, the Fed is keeping monetary policy extremely loose and is encouraging businesses to make plans based on low interest rates. Also, the Fed does not seem to buying into the view that the recovery is gaining notable traction. Or at least the Fed sees the risk of too slow growth as too high. Though there is no reference in the statement (but could be in the minutes), the Fed must be aware that fiscal policy is likely to be modestly contractionary in coming quarters.

On the news, Treasury yields declined.

The Fed will release its updated economic forecasts (now to include the fed funds rate and timing of next policy move) at 2:00 p.m. ET, followed by Bernanke's press conference at 2:15 p.m. ET.

Recent History Of This Indicator
The FOMC announcement at 12:30 p.m. ET for the January 24-25 FOMC policy meeting is expected to leave the fed funds target unchanged at a range of zero to 0.25 percent. Some Fed watchers are increasingly expecting QE3 and traders will be looking for language supporting this view or not. Also, the Fed will release its quarterly forecast between the announcement and the chairman's press conference. This forecast for the first time will include projections for the fed funds rate.

Definition
The Federal Open Market Committee (FOMC) is the policy-making arm of the Federal Reserve. It determines short-term interest rates in the U.S. when it decides the overnight rate that banks pay each other for borrowing reserves when a bank has a shortfall in required reserves. This rate is the fed funds rate. The FOMC also determines whether the Fed should add or subtract liquidity in credit markets separately from that related to changes in the fed funds rate. The Fed announces its policy decision (typically whether to change the fed funds target rate) at the end of each FOMC meeting. This is the FOMC announcement. The announcement also includes brief comments on the FOMC's views on the economy and how many FOMC members voted for and how many voted against the policy decision. Since the last recession, the statement also includes information on Fed purchases of assets, so-called "quantitative easing", which affects longer-term interest rates. Also, a key part of the announcement is guidance on potential changes in policy rates or asset purchases. Why Investors Care

The Fed closely monitors the core PCE price index to indicate whether or not policy is approximately correct, overly accommodative, or too restrictive. The PCE price index is preferred to the CPI because it is more closely aligned to the cost of living than the CPI (which measures a fixed basket of goods & services.)
This chart covers monthly data and the fed funds target rate reflects the monthly average. As such, it will not correspond to the most recent fed funds rate target announced by the Fed.Data Source: Haver Analytics